Guaranteed Minimum Withdrawal Benefit (GMWB)
A variable annuity rider guaranteeing withdrawals of a stated percentage for life even if the account value falls to zero.
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A policyowner adds a guaranteed minimum withdrawal benefit (GMWB) rider to a contract. What does this rider guarantee?
The owner may withdraw a specified annual amount for life regardless of investment performance — A guaranteed minimum withdrawal benefit rider guarantees that the policyowner can withdraw a specified annual amount, often a percentage of an income base such as 5% or 7% for life, even if the account value is exhausted by poor investment performance. The income base is typically the greater of premiums paid or the contract value at the election date, and the withdrawals continue for life or a set period. The rider protects the owner from outliving the account, converting a market-dependent contract into income security.
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A guaranteed minimum withdrawal benefit (GMWB) rider is designed to:
Guarantee that the owner can withdraw a specified amount, often for life, regardless of the underlying account's performance — A guaranteed minimum withdrawal benefit rider promises that the owner may withdraw at least a specified annual amount, in many cases for life, even if the underlying account value falls to zero because of poor investment performance. The guarantee is typically based on a benefit base that grows with premiums and sometimes with bonuses, rather than on the actual account value. It converts market risk into a guaranteed income stream for the owner over the withdrawal period. Withdrawals under the rider reduce the benefit base and may permanently lower the guaranteed amount.
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